Council may grant tax break outside city limits

Costco at 3836 Richmond. A new store planned for Grand Parkway and Interstate 10 may see a tax break from the Houston City Council.

Costco at 3836 Richmond. A new store planned for Grand...

The Houston City Council on Wednesday will consider giving up to $1 million in tax rebates to a Costco store that would be built outside city limits.

City officials say the proposed 151,600-square-foot warehouse and liquor store, in the 23600 block of Katy Freeway, will act as a catalyst for further development in the area around Interstate 10 and the Grand Parkway, and generate tax revenues the city otherwise would not collect.

Economic development experts, however, say development in the area is likely without the incentive, given that a new segment of the Grand Parkway connecting I-10 to U.S. 290 will open in December.

Translator

To read this article in one of Houston's most-spoken languages, click on the button below.

The 14 acres Costco is under contract to buy is in Cimarron Municipal Utility District, with which the city cut a special-purpose annexation deal in 2003. Under the agreement, the city and utility district split the revenues of a 1-cent sales tax collected within the district's boundaries. The city provides only animal control services there, and property owners pay no city property taxes.

'A catalyst project'

In addition to spurring development in the district, city officials say the proposed store will pull sales from nearby retailers in the unincorporated county, from which the city collects no revenue.

"It's very critical the first project that goes into an area is a good, strong anchor store, because it generates additional and strong retailers to complement that anchor store," said Gwen Tillotson, of the city's economic development department. "We suspect that this is going to be a catalyst project."

Without the incentive, Chief Development Officer Andy Icken said, the company likely would have picked a tract it had under contract a mile west of the utility district, near Katy Mills Mall, where no revenue would have been generated for the city.

Icken said the city expects to collect $8 million in sales tax revenues from the store during the life of its annexation agreement, after rebates. The rebates will come from sales taxes generated by the store, and will be used to reimburse Costco for infrastructure work, mainly a road connecting it to the I-10 feeder road. The Cimarron district will pay for soil work to make the site suitable for construction.

Combined, Costco would be reimbursed about $2.5 million. Costco representatives declined to comment on the project or the rebates.

Councilwoman Melissa Noriega said she has concerns about the proposal, but has not decided how she will vote. "It seems like Costco is an awfully big, well-funded company to need that kind of infrastructure assistance," she said. "Having said that, I know we want to incentivize the kind of retail they produce for the tax rolls."

Proposal 'troubling'

Greg LeRoy, executive director of the Washington-based economic development research group, Good Jobs First, called the proposal "troubling."

"The idea that you'd have to subsidize a big box store already getting served by a major new highway construction project strikes me as overkill, to be polite about it," he said. "That's, obviously, going to be an enormous shot in the arm that any big box facility covets profoundly."

Commercial developers hawking land around the proposed Costco site say interest in new residential and commercial projects there already is apparent.

Icken acknowledged the new highway may drive retail development in the area, but said the incentive will ensure the city collects as much sales tax revenue as possible before its deal with the utility district ends in 2033.

"We have an opportunity now," Icken said. "To the extent that we have influence to generate sales tax dollars that we share in, I think that's a good thing from the city's viewpoint."

Councilman Stephen Costello said it is odd to cut an incentive deal so far outside city limits, but said the population to support retail has existed in the area for years without commercial growth. Costco could change that, he said, adding the incentive should pay for itself as other retailers open nearby.

Costco does provide workers better salaries and benefits than other large retailers, LeRoy said, and if the store succeeds in drawing other retailers, the city would benefit from that revenue. However, he said, the catalyzing effect of such retail projects often is overstated, and said subsidizing retail simply pushes sales from one store to another.